Supply glut spells end of oil price rally

Saudi Arabia's Energy Minister Khalid Al-Falih said this week that global inventories are falling more slowly than expected. Photo / AP

Opec and its partners have seen the rally in oil prices evaporate as the US inventory glut becomes impossible to ignore.

West Texas Intermediate closed at its lowest price since November 29, the day before Opec approved the first supply cuts in eight years. Crude supplies in the US rose to the highest level since 1982, according to Government data.

Harold Hamm, the US shale oil billionaire, warned this week that the industry could "kill" the market if it embarked on another spending binge. Oil had fluctuated above US$50 a barrel since the Organisation of Petroleum Exporting Countries and other countries started trimming supply to reduce a global glut.

"People are nervous about the global supply-demand balance," said Adam Sieminski, a former head of the Energy Information Administration (EIA).

"Shale is coming back with US$50 oil and there's uncertainty about whether Opec and its partners are going to roll over the production agreement."

West Texas Intermediate for April delivery dropped US$1, or 2 per cent, to close at US$49.28 a barrel on the New York Mercantile Exchange.

Brent for May settlement slipped 92USc to US$52.19 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since November 30.

Saudi Arabia's Oil Minister Khalid Al-Falih said this week that global inventories are falling more slowly than expected, opening the door to extend the output-cut deal beyond its initial six months. Producers will meet in Vienna in May.

Crude production in the US rose for a third week to 9.09 million barrels a day, the EIA said this week, and the nation's output is projected to surge to a record 9.73m barrels a day next year, according to the agency.

- Bloomberg